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Hong Kong MTR

High-speed rail link between Hong Kong and mainland China will struggle to make money say critics, as they challenge claims it will be profitable from day one

Questions raised over assurances that HK$84.4 billion Guangzhou-Shenzhen-Hong Kong Express Rail Link will attract customers and prove to be lucrative investment for taxpayers

PUBLISHED : Friday, 24 August, 2018, 11:18pm
UPDATED : Friday, 24 August, 2018, 11:31pm

Critics have questioned assurances given by transport bosses that Hong Kong’s high-speed rail link to mainland China will be profitable from the day it starts operating.

The Guangzhou-Shenzhen-Hong Kong Express Rail Link was built at a cost of HK$84.4 billion (US$10.8 billion) of taxpayers’ money. Operated by the MTR Corporation, it is expected to open on September 23 and will connect the city directly to 44 mainland destinations.

On Friday, Secretary for Transport and Housing Frank Chan Fan was asked if the latest passenger figures of 80,100 a day – lower than a previous projection when more funding was sought for the long-delayed and over-budget service – would make Hongkongers feel they were being “cheated”.

Chan said the government’s figures had been updated to account for the frequency of trains.

“We are trying to review as much as possible to let the public and everybody in Hong Kong know the exact situation,” he said.

But Quentin Cheng Hin-kei, spokesman for concern group Public Transport Research Team, said even the latest passenger figures seemed inflated.

For one, those going on short-haul trips may not switch from their current options. For example, the 310,000 passengers going from Hong Kong to Lok Ma Chau to cross the border into Shenzhen can take the MTR Corp’s East Rail from Hung Hom, which costs HK$38 per one-way trip.

In contrast, the high-speed rail to Futian and Shenzhen North, both stations in the city of Shenzhen, would cost HK$78 and HK$86 respectively.

As for the estimated 10,000 daily travellers to Guangzhou, those taking the current slow through train would take less than two hours to a centrally-located station while the express rail link would go to Guangzhou South, further away from the city centre and taking between 48 and 71 minutes.

“We estimate that the new rail can draw new passengers by 10 to 20 per cent with a portion of passengers switching from the existing rail network to it,” Cheng said. “Overall, we reckon that the high-speed rail can only draw slightly more than 60,000 passengers a day, 20 per cent lower than the government’s forecast.”

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On Thursday, Chan said he was “pretty confident” the high-speed rail would not incur losses in future, based on the government’s latest projections of daily passenger flows and “competitive” ticket pricing.

The government said it expected the express rail to earn HK$671 million in the fourth quarter of this year, which would translate into a profit of HK$199 million as operating costs are estimated to be HK$472 million.

The MTR Corp, which is 75 per cent owned by the government, will pay the latter’s wholly-owned Kowloon-Canton Railway Corporation (KCRC) HK$2.7 billion over the next 10 years for the right to operate the rail link.

The KCRC will step in if the difference between projected and actual passenger flows is more than 15 per cent, by absorbing 70 per cent of losses incurred, or 70 per cent of profits earned.

But it will also have to compensate the MTR Corp if the number of East Rail users drops by a specific proportion because they had switched to the high-speed rail. This amount will be capped at HK$1.5 billion over the same period.

David Webb, a Hong Kong-based shareholder activist, said: “It is deceptive to claim that it will be profitable from day one.”

Webb claimed that what the KCRC would get translated into a 0.3 per cent rate of return on the amount spent on the project.

“It’s not going to be a lucrative return for anybody,” he said. “In that sense it will never be profitable for Hong Kong’s taxpayers.

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“From the government’s perspective, it’s certainly not an economic rate of return. It’s being done for national policy reasons, not for economic reasons.”

However, Chan said on Friday the government had prioritised serving the burgeoning cross-border travel market and growing a new pool of customers.

“Our aim was never to recover the capital cost, but to create the overall economic benefits such as savings in cross-border travelling time and creation of jobs for the society’s long-term development,” he said.

Webb said that going by the available information, the MTR Corp would probably make a “negligible” overall profit from the rail link.

Cheng argued that the MTR Corp’s refusal to sign an operating agreement for longer than 10 years suggested it was unsure about the rail link’s profitability.

“If this rail link is really profitable why is the MTR unwilling to take a longer commitment as originally proposed?”

However, stockbroker Francis Lun, chief executive of GEO Securities Ltd., urged critics to take a big picture view.

“For any infrastructure investment, don’t expect to recover the cost and make money,” he said.

“The value of the railway is not measured in money terms but its social contribution such as boosting cross-border economic activity, and bringing convenience to some remote mainland cities.”